Better financial practices improve your quality of life
Personal finance is a common household concern for many families. Living paycheck to paycheck or experiencing an emergency situation that requires disposable cash can create financial hardship, which can lead to worry and stress.
Eleanor Roosevelt may not have been talking about financial plans when she said that “it takes as much energy to wish as it does to plan,” but the idea applies nonetheless. When you have a financial plan, you have control over your finances. A plan shows you exactly what each dollar should go toward each month, it shows you how saving just a little each month will add up, and it helps you work toward financial freedom.
There are many benefits to having a financial plan, some more obvious than others. Here are five ways financial planning can help you avoid financial worry and stress.
1. Defined Financial Goals
Perhaps the most important action you can take in regards to your finances is to define reasonable goals to help provide clarity and direction. For most people, financial goals include a mix of both long and short term goals. Retirement, debt reduction, and building an emergency fund are common goals that can be worked on simultaneously.
Setting goals allows you to define your own personal success criteria, which means you can start to work backwards. Smaller goals along the way serve as important checkpoints to help you to see progress and stay motivated. For example, if one of your big goals is to pay off your credit card debt and you have multiple credit cards, paying just one off is a small step on your journey, but it helps you know that you’re on track and making progress.
For big, long-term goals like retirement, it is best to work with a financial planner. How much you should save each month depends greatly on your specific financial situation (how much debt you have, if you have an emergency fund, when you expect to retire, how near you are to retirement age, etc.). Financial planners have expert knowledge that can help you clarify a major goal like retirement.
2. Improved Financial Literacy
When you develop a financial plan and put it into action, you are beginning a learning journey that will improve your financial literacy—your understanding and ability to use the skills and concepts related to finance. Personal finance, investing, budgeting, saving and risk management are all foundational aspects of financial literacy.
People who are more developed in their understanding of financial concepts tend to be less vulnerable. They typically have better cash management skills, are more likely to have an emergency fund, less personal debt, and are even less likely to be a victim of fraud or scams.
You can improve your financial literacy in a number ways—reading books and listening to podcasts that discuss financial concepts, or through trial and error of developing and putting into action your own financial plan.
3. Increased Motivation
Behavior plays a major role in personal finance. Most of our behavior is influenced by motivation, and a financial plan can help build and sustain your momentum.
Motivation is driven by feelings of success and validation. A financial plan with clearly defined goals, smaller checkpoints to help monitor your progress, along with working knowledge of financial concepts and skills are all ways you can fuel your motivation. An intentional financial plan helps you to stay focused and feel successful.
4. Better Mental Health
Finances are a major concern for many individuals and couples alike and can be a constant source of conflict and stress. One way to reduce financial anxiety is to create and adhere to a plan that reflects what you can control. A plan can also help offer peace of mind.
Of course, there will always be circumstances that are out of your control, but rather than worrying about it, you can prepare. People who have an emergency fund, little or no personal debt, and have been saving for retirement are able to weather almost any financial storm. Financial plans reduce stress and anxiety about money and promote feelings of confidence.
5. Improved Financial Outcomes
Of course, the most obvious benefit of a financial plan is a better financial future for you and your family.
People who have a financial plan are more likely to become financially independent, meaning they’ve broken the cycle of debt by paying off all debts and built up enough savings to cover emergency situations. Additionally, people with a plan are far more likely to be able to fully retire (if they wish) at retirement age or save for their child’s education. There are many benefits to having a financial plan, but this benefit is, by far, the most important.
80% of people with a personalized plan are on track or ahead of plan with their savings (vs. 39% of people without a plan). – Goldman Sachs Retirement Survey & Insights Report 2024
Need Professional Support?
Our knowledgeable, experienced team at Trust Point is here to offer you comprehensive, impartial advice, and to help you create and manage a financial plan. Our six-step approach to financial planning can help you take advantage of every benefit a financial plan has to offer. Click here to get started.
